Weak Home Prices in UK; M&S Sales Decline

123jump.com Staff
02 Oct, 2008
New York City

The UK home prices declined 2.4% in September as tight credit conditions and weak consumer confidence drive away buyers. Stocks in London declined ahead of the U.S. House vote on controversial bailout plan. Marks & Spencer lowered its capital spending plans and reported same store sales decline.

[R]1:00PM New York, 6:00PM London – The U.K. house prices declined 2.4% in September. Marks & Spencer same store sales decline in the second quarter.[/R]

The UK investors are worried that the economy is likely to slip from economic slowdown to a recession. Home price decline in September is the latest evidence in a string of economic data that are confirming growing weakness in the economy. Falling retail sales, weakening manufacturing sector and stagnant service sector have dragged consumer confidence down to the lowest levels in the last five years.

Market Sentiment

In London trading FTSE 100 fell 1.8% or 89.25 to 4,870.34.

Of the FTSE 100 index stocks, 31 rose, 70 declined, and 1 was unchanged. HBOS Plc led advancers in the index shares with a rise of 14.81% followed by Marks & Spencer increasing by 8% after it cut its capital spending to £700 million from the previous target of £800 to £900 million.

Home Prices Fall 12.4% in September

Nationwide Building Society reported on its Web site yesterday that house prices fell 1.7% from the previous month and 12.4% from a year ago in September as the credit crunch continues to take its toll.

The report said prices in the third quarter dropped 10.3% from a year ago. Prices in North Ireland slumped 29.8%, while those in London declined 9.4%.

Nationwide''s Chief Economist Fionnuala Earley said that the current conditions in the housing market are starkly different from a year ago with fewer than 20% of first-time buyers are borrowing above 90%, while the key rate is forecasted to slump to 3.5% by the end of next year.

""The long-run trend growth in real house prices in the UK is around 2.7% per annum and there is no reason to expect that over the longer term house prices should not continue to go up in real terms, even if we are going through a sharp correction now,"" said Earley.

According to the report, there was need for a significant shift in consumer''s sentiment before any real recovery.

U.K. Housing Construction Drops in September

The Chartered Institute of Purchasing reported on its Web site today that according to the latest CIPS/Markit Purchasing Managers'' Index for construction activity was measured at 38.8 in September from 40.5 in August. A figure below 50 represents contraction.

The sector has now been below 50 since December 2007.

Commercial activity dropped to a record low to 36.4 from 40.3 in August weighed down by global financial and economic conditions. Civil engineering activity at 49 slowed but at a slower rate than the previous month.

In addition new orders declined to 41.2 from 42.6 a month earlier and staff levels in the period were measured at 42.3 from 47.

CIPS noted that input prices slumped to 69.5 in the review period from 76.7.

Gainers & Losers

HBOS Plc led advancers in the FTSE 100 index shares with a rise of 14.81% followed by increases in Marks & Spencer of 8.09%, in Pearson Plc of 5.49%, in Lloyds TSB Group of 4.80%, and Next Plc of 3.78%.

Marks & Spencer rose as the company cut its capital spending from its earlier forecast.

Vedanta Resources led decliners in the FTSE 100 index shares with a fall of 11.9% followed by losses in Tullow Oil of 10.20%, in Cairn Energy of 9.74%, in Antofagasta of 8.28%, and Rio Tinto of 7.94%.

Commodity stocks declined as crude oil prices slumped to $94.06 per barrel.

Marks & Spencer Cut Spending

U.K. retailers Marks & Spencer reported that sales at stores open at least a year in the fiscal second quarter of thirteen weeks, ending on September 27, dropped 6.1%. The general merchandise sales declined 6.4% and food sales fell 5.9%. However online sales were up 34% and international sales rose 24%.

The company sales rose 0.4% in the quarter from a year ago but sales in the UK were down 1.6%.

The company also slashed its capital spending to £700 million from the previous target of £800 to£900 million. For the fiscal 2010 the capital expenditure will be £400 million in fiscal 2010 with a focus on information technology and supply chain.

The company estimated 100 basis points lower gross margin for the full fiscal year and the growth in operating cost between 4% and 5% compared to previous guidance of 7%.

Marks & Spencer stock in London trading gained 17 pence to 227.25 pence at close. The company will release the interim financial results on November 2008.